Question

Calculator Finch Company began its operations on March 31 of the current year. Finch has the following projected costs: April May June Manufacturing costs* $157,700 $198,300 $201,000 Insurance expense** 870 870 870 Depreciation expense 1,870 1,870 1,870 Property tax expense*** 520 520 520 *Of the manufacturing costs, three-fourths are paid for in the month they are incurred; one-fourth is paid in the following month. **Insurance expense is $870 a month; however, the insurance is paid four times yearly in the first month of the quarter, (i.e., January, April, July, and October). ***Property tax is paid once a year in November. The cash payments expected for Finch Company in the month of May are a.$39,425 b.$148,725 c.$188,150 d.$227,575

Answer 1

Option (c) is correct.

Step-by-step explanation:

Manufacturing cost for April = $157,700

Manufacturing cost for May = $198,300

Manufacturing cost for June = $201,000

Manufacturing Costs payment in May:

= 3/4th of Manufacturing costs in May

=
`(3)/(4)* 198,300`

= $148,725

Manufacturing cost for April:

= 1/4th of Manufacturing costs in April

`=(1)/(4)* 157,700`

= $39,425

Therefore, the cash payments expected for Finch Company in the month of May are as follows:

= Manufacturing Costs payment in May + Manufacturing cost for April

= $148,725 + $39,425

= $188,150

Notes:

(1) Insurance expense is not taken into account because it will paid in the first month of the quarter i.e, in the month of April.

(2) Depreciation expense is the non cash expense.

(3) Property taxes are paid in November for the full year.